[Federal Register Volume 62, Number 54 (Thursday, March 20, 1997)]
[Notices]
[Pages 13417-13421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7054]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38399; File No. SR-NASD-97-18]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 by National Association of Securities Dealers, Inc. Relating to 
Amendments to the Corporate Financing Rule, The Nasdaq Stock Market 
Rules, and Over-the-Counter Bulletin Board Rules to Effect Compliance 
With SEC Regulation M

March 14, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on March 6, 
1997, the National Association of Securities Dealers, Inc. (``NASD'' or 
``Association'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule and on March 10, 1997, 
the Association filed Amendment

[[Page 13418]]

No. 1. The proposed rule change and Amendment No. 1 are described in 
Items I, II, and III below, which Items have been prepared by the NASD. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons. For the reasons discussed 
below, the Commission is granting accelerated approval of the proposed 
rule change.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD Regulation is proposing to amend the Corporate Financing Rule 
in Rule 2710, the Nasdaq Rules, and the Over-the-Counter Bulletin Board 
Rules of the Association to effect compliance with the Commission's 
Regulation M. Below is the text of the proposed rule change. Proposed 
new language is in italics; proposed deletions are in brackets.
2700. SECURITIES DISTRIBUTIONS
2710. Corporate Financing Rule--Underwriting Terms and Arrangements
    (a) No change.
(b) Filing Requirements
    (1) through (10) No change.
(11) Request for Underwriting Activity Report
    Nowithstanding the availability of an exemption from filing under 
subparagraph (b)(7) of this Rule, a member acting as a manager (or in a 
similar capacity) of a distribution of a publicly traded subject 
security or reference security that is subject to SEC Rule 101 shall 
submit a request to the Corporate Financing Department for an 
Underwriting Activity Report with respect to the subject and/or 
reference security in order to facilitate compliance with SEC Rules 
101, 103, or 104, and other distribution-related Rules of the 
Association. The request shall be submitted at the time a registration 
statement or similar offering document is filed with the Department, 
the SEC, or other regulatory agency or, if not filed with any 
regulatory agency, at least two (2) business days prior to the 
commencement of the restricted period under SEC Rule 101. The request 
shall include a copy of the registration statement or similar offering 
document (if not previously submitted pursuant to subparagraph (b)(5) 
of this Rule). If no member is acting as managing underwriter of such 
distribution, each member that is a distribution participant or an 
affiliated purchaser shall submit a request for an Underwriting 
Activity Report, unless another member has assumed responsibility for 
compliance with this subparagraph. For purposes of [this] subparagraphs 
(b) (11) and (12), SEC Rules 100, 101, 103, and 104 are rules of the 
Commission adopted under Regulation M and the following terms shall 
have the meanings as defined in SEC Rule 100: ``distribution,'' 
``distribution participant,'' ``reference security,'' ``restricted 
period,'' and ``subject security.''

(12) Submission of Pricing Information

    A member acting as a manager (or in a similar capacity) of a 
distribution subject to subparagraph (b)(11) of securities that are 
listed on a national securities exchange or are considered ``activity-
traded'' under SEC Rule 101 shall provide written notice to the Market 
Regulation Department of NASD Regulation, Inc., no later than the close 
of business the day the offering terminates, that includes the date and 
time of the pricing of the offering, the offering price, and the time 
the offering terminated, which notice may be submitted on the 
Underwriting Activity Report.
    (c) No change.
4600. NASDAQ MARKET MAKER REQUIREMENTS
4614. Stabilizing Bids
    (a) No change.
(b) Eligibility
    Only one market maker in a[n issue] security may enter a 
stabilizing bid.
    (c) Limitations on Stabilizing Bids--No change.
(d) Submission of Request to Association
    (1) A market maker that wishes to enter a stabilizing bid shall 
submit a request to Nasdaq Market Operations for the entry [in the] on 
Nasdaq [quotation display] of a one-sided bid identified as a 
stabilizing bid. The market maker shall confirm its request in writing 
no later than the [end of] close of business the day [on which] the 
stabilizing bid is entered by submitting an Underwriting Activity 
Report to Nasdaq Market Operations that includes the information 
required by subparagraph (d)(2).
    (2) In lieu of submitting the Underwriting Activity Report as set 
forth in subparagraph (d)(1), the market maker may provide written 
confirmation to Nasdaq Market Operations that shall include:
    (A) and (B)--No change.
    (C) the date and time that an identifier should be included on 
[the] Nasdaq [quotation display]; and
    (D) No change.
4619. Withdrawal of Quotations and Passive Market Making
    (a)-(c) No change.
    (d) Excused withdrawal status or passive market maker status may be 
granted to a market maker that is a distribution participant (or, in 
the case of excused withdrawal status, an affiliated purchaser) in 
order to comply with SEC Rules 101, 103, or 104 under the Act on the 
following conditions:
    (1) A member acting as a manager (or in a similar capacity) of a 
distribution of a Nasdaq security that is a subject security or 
reference security under SEC Rule 101 and any member that is a 
distribution participant or [that is] an affiliated purchaser in such a 
distribution that does not have a manager shall provide written notice 
to Nasdaq Market Operations and the Market Regulation Department of 
NASD Regulation, Inc. no later than the business day prior to the first 
entire trading session of the one-day or five-day restricted period 
under SEC Rule 101, unless later notification is necessary under the 
specific circumstances.
    (A) The notice required by subparagraph (d)(1) of this Rule shall 
be provided by submitting a completed Underwriting Activity Report that 
includes a request on behalf of each market maker that is a 
distribution participant or an affiliated purchaser to withdraw the 
market maker's quotations, or that includes a request on behalf of each 
market maker that is a distribution participant (or an affiliated 
purchaser of a distribution participant) that its quotations be 
identified as those of a passive market maker, and includes the 
contemplated date and time of the commencement of the restricted 
period.
    (B) The managing underwriter shall advise each market maker that it 
has been identified as a distribution participant or an affiliated 
purchaser to Nasdaq Market Operations and that its quotations will be 
automatically withdrawn or identified as passive market maker 
quotations, unless a market maker that is a distribution participant 
(or affiliated purchaser of a distribution participant) notifies Nasdaq 
Market Operations as required by subparagraph (d)(2), below.
    (2) A market maker that has been identified to Nasdaq Market 
Operations as a distribution participant (or an affiliated purchaser of 
a distribution participant) shall promptly notify Nasdaq Market 
Operations and the manager of its intention not to participate in the 
prospective distribution or not to act as a passive market maker in 
order to avoid having

[[Page 13419]]

its quotations withdrawn or identified as the quotations of a passive 
market maker [, or in order to have its excused withdrawal status 
rescinded].
    (3) No change.
    (4) No change.
    (5) A member acting as a manager (or in a similar capacity) of a 
distribution subject to subparagraph (d)(1) of this rule shall submit a 
request to Nasdaq Market Operations and the Market Regulation 
Department of NASD Regulation, Inc. to rescind the excused withdrawal 
status or passive market making status of distribution participants and 
affiliated purchasers, which request shall include the date and time of 
the pricing of the offering, the offering price, and the time the 
offering terminated, and, if not in writing, shall be confirmed in 
writing no later than the close of business the day the offering 
terminates. The request required by this subparagraph may be submitted 
on the Underwriting Activity Report.
4623. Penalty Bids and Syndicate Covering Transactions
    (a) No change.
    (b) No change.
    (c) Notwithstanding paragraph (a), a market maker may request that 
its quotation be identified as a penalty bid on Nasdaq display by 
providing notice to Nasdaq Market Operations, which notice shall 
include the date and time that the penalty bid identifier should be 
entered on Nasdaq and, if not in writing, shall be confirmed in writing 
no later than the [end of the day on which] close of business the day 
the penalty bid identifier is entered on Nasdaq.
    (d) No change.
6500. OTC BULLETIN BOARD SERVICE
6540. Requirements Applicable to Market Makers
    (a) No change.
    (b) No change.
(1) Permissible Quotation Entries
    (A)-(C) No change.
    (D) Any member that intends to be a distribution participant in a 
distribution of securities subject to SEC Rule 101, or is an affiliated 
purchaser in such distribution, and is entering quotations in an OTCBB-
eligible security that is the subject security or reference security of 
such distribution shall, unless another member has assumed 
responsibility for compliance with this paragraph:
    (i) No change.
    (ii) withdraw all quotations in the OTCBB-eligible security to 
comply with the applicable restricted period under SEC Rule 101 and not 
enter a stabilizing bid pursuant to SEC Rule 104 in the OTCBB; [and]
    (iii) provide written notice to the Corporate Financing Department 
of NASD Regulation, Inc. of its intention to impose a penalty bid or to 
conduct syndicate covering transactions pursuant to SEC Rule 104 prior 
to imposing the penalty bid or engaging in the first syndicate covering 
transaction. Such notice shall include information as to the date the 
penalty bid or first syndicate covering transaction will occur and the 
amount of the syndicate short position[.] ; and
    (iv) provide written notice to the Market Regulation Department of 
NASD Regulation, Inc. by the close of business on the day the offering 
terminates that includes the date and time of the pricing of the 
offering, the offering price, and the time the offering terminated.
    (E) The written notice required by subparagraphs (b)(1)(D)(i), 
[and] (iii) , and (iv) of this rule may be submitted on the 
Underwriting Activity Report provided by the Corporate Financing 
Department of NASD Regulation, Inc. by including the information 
required by those subparagraphs.
    (F) For purposes of subparagraph (b)(1)(D), SEC Rules 100, 101, 
103, and 104 are rules of the Commission adopted under Regulation M and 
the following terms shall have the meanings as defined in SEC Rule 100: 
``affiliated purchaser,'' ``distribution,'' ``distribution 
participant,'' ``penalty bid,'' ``reference security,'' ``restricted 
period,'' ``stabilizing,'' ``subject security,'' and ``syndicate 
covering transaction.''

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NASD has prepared summaries, set forth in Sections 
(A), (B), and (C) below, of the most significant aspects of such 
statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The SEC has approved, effective March 4, 1997, amendments to the 
NASD rules regarding Corporate Financing, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), and the OTC Bulletin Board (``OTCBB'') that are designed 
to assist members in complying with SEC Regulation M that became 
effective on that date.\1\ In general, the amendments to NASD rules 
establish a new requirement for members to obtain an Underwriting 
Activity Report from the Corporate Financing Department of NASD 
Regulation, Inc. (``NASD Regulation'') with respect to a proposed 
distribution subject to SEC Rule 101; modify current Nasdaq 
requirements with respect to the entry of a stabilizing or penalty bid 
and requests for excused withdrawal of quotations or designation of 
quotations as those of a passive market maker; and establish new 
requirements for notification with respect to penalty bids and 
syndicate covering transactions for Nasdaq and OTCBB securities.
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    \1\ Securities Exchange Act Release No. 38360 (March 4, 1997).
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    The NASD is proposing to amend the rules approved by the SEC on 
March 4, 1997 to require that members provide notification to the 
Association of the date and time of the pricing of an offering, the 
offering price, and the time the offering terminated with respect to 
offerings of Nasdaq and OTCBB securities, exchange-listed securities, 
and securities considered ``actively-traded'' under SEC Rule 101 of 
Regulation M. In addition, the NASD is proposing to amend Rule 4619 of 
the Nasdaq rules to clarify the applicability of the provision to 
affiliated purchasers of a distribution participant. Other amendments 
are proposed to Rules 4614, 4623, 4619 and 6540 to make nonsubstantive 
corrections to the language of the rules.
    The Nasdaq Rules. The NASD is proposing to amend subparagraph 
(d)(1) of Rule 4619 to require that the notice to be submitted by a 
member to request excused withdrawal or passive market making status on 
the part of distribution participants and affiliated purchasers should 
be directed to both Nasdaq Market Operations and the Market Regulation 
Department of NASD Regulation. Where the required notice is submitted 
electronically to the Association, it will automatically be received at 
both these locations. Hard copy submissions of the notice will be 
required to be faxed to both Departments.
    Subparagraphs (d)(1) (A) and (B) of Rule 4619 are proposed to be 
amended to clarify that an affiliated purchaser of a distribution 
participant, as compared to an affiliated purchaser of the issuer, is 
permitted to engage in passive market

[[Page 13420]]

making. Where a market maker is an affiliated purchaser of the issuer 
only, the market maker will not be permitted to engage in passive 
market making under SEC Rule 103, as SEC Rule 102 does not include an 
exception for passive market making activity. However, a market maker 
that is affiliated with a distribution participant, i.e., a member that 
is a distribution participant is affiliated with another non-
participating market maker, can rely on the exception from SEC Rule 101 
for passive market making.
    The NASD is also proposing to adopt new subparagraph (d)(5) of Rule 
4619 to require that the managing underwriter submit a request to 
Nasdaq Market Operations and the Market Regulation Department of NASD 
Regulation to terminate the excused withdrawal status or passive market 
making status of distribution participants and affiliated purchasers. 
It is anticipated that the request will be by telephone to the staff of 
the Market Regulation Department and the provision requires that it be 
confirmed in writing by close of business on the day the offering is 
terminated. The request must include the date and time of the pricing 
of the offering, the offering price, and the time the offering 
terminated. The member may use an Underwriting Activity Report to 
submit its request.
    Paragraph (c) of Rule 4623, relating to penalty bids and syndicate 
covering transactions, is proposed to be amended to make its language 
consistent with other provisions in requiring that the member's request 
for an identifier for a penalty bid be received no later than the close 
of business the day the penalty bid identifier is entered on Nasdaq.
    OTCBB Rules. Moreover, the NASD is proposing similar requirements 
with respect to OTCBB securities. Proposed amended Rule 6540 will 
require that a member provide written notice to the Market Regulation 
Department of NASD Regulation by close of business on the day the 
offering terminates that includes the date and time of the pricing of 
the offering, the offering price, and the time the offering terminated.
    Corporate Financing Rule. Similar to requirements proposed with 
respect to Nasdaq and OTCBB securities, the NASD is also proposing to 
amend Rule 2710(b) to add new subparagraph (12) to require that a 
member acting as a manager (or in a similar capacity) of a distribution 
subject to subparagraph (b)(11) of Rule 2710 of securities that are 
listed on a national securities exchange or are considered ``actively-
traded'' under SEC Rule 101 adopted under SEC Regulation M, shall 
provide written notice to the Market Regulation Department of NASD 
Regulation by close of business on the day the offering terminates that 
includes the date and time of the pricing of the offering, the offering 
price, and the time the distribution terminated. Actively-traded 
securities, i.e., securities with an Average Daily Trading Volume 
(``ADTV'') of at least $1 million and a public float value of at least 
$150 million, are no longer subject to any restricted period under SEC 
Rule 101. Thus, in the normal course, the NASD is unlikely to receive 
any further information with respect to when the offering is priced and 
is terminated as the market makers participating in the offering need 
not submit a request for excused withdrawal or identification of 
quotations as those of a passive market maker under NASD Rule 4619. 
Information on the pricing of offerings of actively-traded securities 
is necessary, however, for the NASD to carry out its regulatory 
obligations to ensure compliance with the SEC's antifraud and 
antimanipulation rules and regulations and with the NASD's Free-Riding 
and Withholding Interpretation in IM-2110-1 and the directed 
commissions provision of Rule 2740. Similarly, such pricing information 
is necessary with respect to a distribution of securities listed on a 
national securities exchange in order to permit the NASD to carry out 
its regulatory obligations with respect to such offerings.
    The provision applies to distributions of securities that are 
subject to new subparagraph (b)(11) that requires that a member acting 
as a manager (or in a similar capacity) of a distribution of securities 
subject to SEC Rule 101 submit a request to the Corporate Financing 
Department for an Underwriting Activity Report. If no member is acting 
as managing underwriter, each member that is a distribution participant 
or an affiliated purchaser is required to submit the request unless 
another member has assumed responsibility for compliance with the 
requirement. Proposed subparagraph (b)(12) provides that a member may 
use the Underwriting Activity Report to submit the required information 
on pricing to Market Regulation Department of NASD Regulation. In 
referencing the Underwriting Activity Report, the NASD includes under 
that umbrella different notification forms that may be used by members 
to submit information required by its rules to comply with SEC 
Regulation M. The Regulation M Trading Notification Form can be used by 
a member to submit the pricing information required by subparagraph 
(b)(12) to Rule 2710, subparagraph (d)(5) of Rule 4619 of the Nasdaq 
rules, and subparagraph (b)(1)(D)(iv) of Rule 6540 of the OTCBB rules 
to Nasdaq Market Operations.
2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(2) of the Act \2\ in that the proposed 
rule change will enforce and facilitate compliance by NASD members with 
the Securities Exchange Act Rules, in addition to compliance with the 
rules of the Association. In addition, the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act in that 
the proposed rule change to require that members submit pricing 
information with respect to distributions of securities not subject to 
a restricted period under SEC Rule 101, exchange-listed securities, and 
OTCBB securities will prevent fraudulent and manipulative acts and 
practices, promote just and equitable principals of trade, and protect 
investors and the public interest.
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    \2\ 15 U.S.C. 78o-3.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    NASD Regulations does not believe that the proposed rule change 
will result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in

[[Page 13421]]

the Commission's Public Reference Room. Copies of such filing will also 
be available for inspection and copying at the principal office of the 
NASD. All submissions should refer to the file number in the caption 
above and should be submitted by April 10, 1997.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    The Commission finds that the NASD' proposal is consistent with the 
Act and the rules and regulations thereunder applicable to a registered 
national securities association. Specifically, the provisions of 
Section 15A(b)(2) of the Act which requires that an association enforce 
compliance with Securities Exchange Act Rules in addition to the rules 
of the association. The Commission believes that the proposal will 
enforce and facilitate compliance by NASD members with the requirements 
of Regulation M, SEC Rules 100 through 105.
    In addition, the Commission finds that the NASD's proposal is 
consistent with the provisions of Section 15A(b)(6) of the Act which 
requires, in part, that an association have rules that are designed to 
prevent fraudulent and manipulative acts and practices, promote just 
and equitable principals of trade, and in general, to protect 
investors. The Commission believes that the NASD's proposal is 
consistent with Section 15A(b)(6) of the Act in that the amendments to 
Nasdaq and OTCBB Rules, in addition to the establishment of a 
requirement to provide pricing information with respect to offerings of 
exchange-listed and ``actively-traded'' securities under SEC Rule 101, 
provide a regulatory framework that will assist members in complying 
with the obligations under Regulation M. The Commission, therefore, 
finds good cause for approving the proposed rule change prior to the 
thirtieth day after the date of publication of filing thereof in the 
Federal Register.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\3\ that the proposed rule change be and hereby is approved. The 
proposed rule change is effective March 14, 1997, with the exception of 
the provisions of Rule 4623 and Rule 5460 that implement the 
notification requirements adopted under Regulation M Rule 104 with 
respect to penalty bids and syndicate covering transactions that will 
become effective on the date that the notification requirements under 
SEC Rule 104 become effective.

    \3\ 17 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12) (1996).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-7054 Filed 3-19-97; 8:45 am]
BILLING CODE 8010-01-M